Week ended 15 November 2008 – World woes continue

Posted by admin on 16 November, 2008 under Weekly business news summary | Be the First to Comment

This week saw the Eurozone slip into recession for the first time since its inception back in 1999.

This week also saw Hong Kong go into recession, with the UK heading for a long and painful recession too. The Pound too a hammering this week against the Dollar falling to a low of just below $1.48 this week. The UK government needs to be careful about how it tackles the present situation and it is not careful, too much borrowing to afford tax cuts and more government spending will cause further falls in the Sterling/Dollar rate. The shadow chancellor, George Osborne, has been criticising the Government and in particular Gordon Brown over his handling of the present situation, which has lead to a warning from Gordon Brown Gordon warning that his actions could lead to a sterling collapse.

So what do we have to look forward to? We have already seen world-wide interest rate cuts and we are to see government spending and tax cuts to help stimulate world economies. This weeks G20 summit has seen world leaders speaking about working together to solve the world financial crisis. The Brazilian President, Luiz Inacio Lula da Silva has voiced his views on the validity of G8 and has said that G20 is much more relevant to the world.

The world leaders at the G20 summit held in Washington have pledged to work together to restore global growth.

We have seen that the G20 leaders have been agreeing on banking reforms to change the financial system to help get the world through this present crisis and to put safety measures in place to prevent the same thing happening again in the future. One way that will help prevent such a situation is to put incentives in place to prevent banks from taking excessive risk.

Mortgage deals low on the ground

The type of deal that used to help first time buyers and others to move home are disappearing fast. Mortgage deals offering a 5% deposit are almost gone altogether and 10% deals are falling fast to around 66 on the market right now, whereas back in February this year were close to 1,200 deals. The other problem that mortgagees face is not having the 1.5% cut being passed on, which is more down to LIBOR being a high rate than base rates.

Pension payment reductions on the cards

AXA have warned about the consequences of people stopping or reducing their pension payments in the face of economic problems, their press release on 15th of November highlights:

“Urgent action needed to prevent £35 billion pension hole”

There are around 1.5 million people planning to stop pension contributions as recession bites and that a two-year pension payment break would cost a 35 year-old man £28,700 from his retirement fund!

The press release comments – “Around half (53%) of those planning a pension break said they were doing so to offset the increased cost of living or to clear debts, with a further 13% blaming increased mortgage payments.”

To see the whole press release click here.

Oil prices down to a low

Oil prices dipped again this week with Brent Crude falling to just over $50 a barrel. Opec are looking to reduce production yet again as we see Iran calling for reduced output as the price of oil drops amid the world economic slowdown. The dramatic falls in the oil barrel price has have major effects on the Russian economy where their economy has become accustomed to high oil prices and with the reduced income has put pressure on their financial systems.

Government support for the car industry

This week also saw the US government in discussion and looking to vote on a bill to pledge $25 billion ($17 billion) to the three major car manufacturers, Ford, Chrysler and General Motors. I am not quite sure whether this is quite what represents a free capital market, but unions of the major car-makers have warned of the dire consequences if any one of the big three went bust.

End of the week saw:
Stock exchanges:
FTSE 100: 4,233
DOW: 8,497
S&P: 873
Nikkei: 8,462

Currencies
UK Sterling £ to US Dollar $ 1.4854
UK Sterling £ to Euro € 1.17167
UK Sterling £ to Aus $ 2.29331
US Dollar $ to Euro € 0.788795

Commodities
Nymex Crude oil – $56.43
Gold – $742.90